non-banking financial institutions

According to the annual Financial Stability Review released by the State Bank of Pakistan, the earnings of non-banking financial institutions (NBFIs) are dwindling despite the increase in their assets.

The asset base of non-banking financial institutions was 7 percent of the asset base of the banking sector in FY 2011-12, which dropped to 6 percent in FY 2014-15.

“The presence of an ever-imposing banking sector with deep resources that offers matching products continues to challenge the existence of NBFIs,” the State Bank said in the review.

However, NBFIs have observed a growth of 7 percent over the three-year period despite a reduction in their relative size within the overall financial system. This 7 percent increase is on account of the reasonable growth witnessed in all sub-sectors of NBFIs except investment banks.

The asset size of the NBFIs at the end of 2015 was Rs.738 billion, 10.1 percent up from previous year. But the expansion in the balance sheet did not influence the earnings growth.

The non-banking financial institutions showed an after-tax profit of Rs.8 billion in the fiscal year 2015. It was 12 percent less than that of the previous year.

The State Bank of Pakistan said the investment banks are weakening due to the deficiency of funding sources from commercial banks and limited equity.

“The sector is unprofitable and has been operating on the sidelines owing to its inability to compete with the investment banking wings of commercial banks,” the central bank said in the review.

Non-Banking Financial Institutions (NBFIs)

NBFI is a financial institution that does not have banking license or not supervised by a national or international banking regulatory agency. NBFIs offer bank related services like investment finance, investment advisory, housing finance, leasing, asset management, modaraba, venture capital investment and development finance.

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